Why El Paso Could Keep On Pumping

By Gene G. Marcial

A Precipitous Drop
The largest U.S. as pipeline company, El Paso (EP ), may face a Securities & Exchange Commission probe, say some pros -- after cutting its assessment of proven natural- gas reserves by 1.8 trillion cubic feet, or by about $1 billion. The stock tumbled -- from 9.67 in January to 7 on Mar. 17. But certain gutsy players find El Paso an attractive "deep value play."

John Maloney of M&R Capital Management, which has scooped up shares, says El Paso's woes, including a possible SEC inquiry, won't harm cash flow. El Paso says it will co-operate in any probe. El Paso traded in the high 40s until the Enron scandal surfaced two years ago. To cut its huge debt of $25 billion, El Paso has been selling noncore assets such as refining and power generation. By 2006, Maloney expects it to be down to $15 billion. He figures El Paso is worth 14, based on the value of its pipelines and production alone, which generate huge cash flow.

Also high on El Paso is Deutsche Bank's John Edwards, who has a 12-month target of 10. El Paso remains a "high risk" stock, he says, but "the odds favor a recovery." His earnings forecast: 15 cents a share in 2004, 43 cents in 2005, and 65 cents to 85 cents in 2006. He rates El Paso a buy.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

See Gene on Fridays at 1:20 p.m. EST on CNNfn's The Money Gang.

Before it's here, it's on the Bloomberg Terminal.